Tactical Shifts And Digital Investments Set To Propel Growth And Efficiency

Key Takeaways

• Strategic investments and portfolio simplification are aimed at boosting revenue in high-net-worth segments and core operations.
  
• Enhancing operational efficiency through partnerships and technology investments is expected to improve net margins and underwriting performance.
  
• AIG's strategies and external challenges may affect its financial stability, investor confidence, and long-term profitability through diversification loss and market volatility.

Catalysts

Offers insurance products for commercial, institutional, and individual customers in North America and internationally.

• The significant investment in infrastructure and digital capabilities for the high-net-worth business is expected to fuel growth in this segment, potentially impacting revenue positively.
  
• The deconsolidation of Corebridge Financial and strategic partnerships with major investors like Blackstone Group and BlackRock are designed to streamline operations and focus on core strengths, which may enhance operational efficiency and contribute to improved net margins.
  
• A disciplined approach to capital management, including share repurchases and dividend payments, is aiming for shareholder value enhancement, likely affecting earnings per share positively.
  
• The strategic sale of the global individual personal travel insurance and assistance business is a move towards portfolio simplification and focusing on more profitable segments, potentially leading to revenue growth in core areas of operation.
  
• Investments in data, digital workflow, AI, and talent are expected to drive operational efficiencies and underwriting improvements, which could lead to better underwriting margins and overall financial performance.

Assumptions

• Analysts are assuming American International Group's revenue will decrease by -19.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 19.5% in 3 years time.
• Analysts expect earnings to reach $4.7 billion (and earnings per share of $7.9) by about August 2027, up from $3.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2027 earnings, down from 13.7x today. This future PE is lower than the current PE for the US Insurance industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 9.54% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 5.8%, as per the Simply Wall St company report.

Risks

• The deconsolidation of Corebridge and the complex accounting treatments associated could create uncertainty around AIG's financial statements, impacting investor confidence and potentially affecting the company's stock price.
  
• Selling significant portions of strategically important units like Corebridge and the personal travel business may reduce AIG's market diversification and could impact future revenue streams.
  
• Heavy reliance on reinsurance, as indicated by the detailed reinsurance strategy shared, could expose AIG to counterparty risks and market volatility, potentially affecting its earnings stability.
  
• AIG's aggressive capital management strategy, including substantial stock repurchases, while beneficial in the short term, may limit the company's financial flexibility to respond to unforeseen challenges, affecting long-term sustainability and profitability.
  
• The forecast for above-average hurricane activity and the potential for elevated catastrophe losses could increase claims costs and negatively impact underwriting margins, especially if actual losses exceed reinsurance coverage limits.

Valuation

• The analysts have a consensus price target of $84.56 for American International Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $96.0, and the most bearish reporting a price target of just $72.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $24.2 billion, earnings will come to $4.7 billion, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of $70.16, the analyst's price target of $84.56 is 17.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.